eldorado brasil celulose s.a. independent auditor’s review … · 2019-05-16 · eldorado brasil...

PST/RM/TM/RS/LAPP 2562i/19

(Convenience translation into English from the originalpreviously issued in Portuguese)

ELDORADO BRASIL CELULOSE S.A.

Independent auditor’s review report

Individual and consolidated interim financialinformationAs at March 31, 2019

2


Individual and consolidated interim financial informationAs at March 31, 2019

Contents

Independent auditor’s review report on the individual and consolidated interimfinancial information

Statements of financial position

Statements of operations

Statements of comprehensive income (loss)

Statements of changes in equity

Statements of cash flows – indirect method

Statements of value added – supplementary information

Notes to the individual and consolidated interim financial information

Tel.: +55 11 3848 5880 Rua Major Quedinho 90Fax: + 55 11 3045 7363 Consolação – São Paulo, SP - Brasilwww.bdobrazil.com.br 01050-030

3

INDEPENDENT AUDITOR’S REVIEW REPORT ON THE INDIVIDUAL ANDCONSOLIDATED INTERIM FINANCIAL INFORMATION

To theShareholders, Board Members and Management ofEldorado Brasil Celulose S.A.São Paulo – SP

Introduction

We have reviewed the individual and consolidated interim financial information of Eldorado BrasilCelulose S.A. (“Company”), included in the quarterly information, identified as Parent companyand consolidated, respectively, for the quarter ended March 31, 2019, which comprise the individualand consolidated interim statement of financial position as at March 31, 2019 and the respectiveindividual and consolidated interim statements of operations, comprehensive income (loss), changesin equity and cash flows for the three-month period then ended, as well as the corresponding notesto the quarterly information, including a summary of significant accounting policies.

The Company’s management is responsible for the preparation of this individual and consolidatedinterim financial information in accordance with Technical Pronouncement CPC 21 (R1) – Interimfinancial statements and with International Accounting Standard (IAS) 34 - Interim FinancialReporting, issued by the International Accounting Standards Board (IASB), and for the presentation ofthis interim financial information in accordance with the standards issued by the Brazilian Securitiesand Exchange Commission (CVM) applicable to the Quarterly Information. Our responsibility is toexpress a conclusion on this individual and consolidated interim financial information based on ourreview.

Scope of review

We conducted our review in accordance with Brazilian and international standards on reviewengagements (NBC TR 2410 and ISRE 2410 - Review of Interim Financial Information Performed by theIndependent Auditor of the Entity). A review of interim financial information consists of makinginquiries, primarily of persons responsible for financial and accounting matters, and applyinganalytical and other review procedures. An interim review is substantially less in scope than an auditconducted in accordance with auditing standards. An interim review does not provide assurance thatwe would become aware of any or all significant matters that might be identified in an audit.Accordingly, we do not express an audit opinion.

Basis for qualified conclusion

Reclassification of loans and financing

As mentioned in Note 17 to the individual and consolidated interim financial information, theCompany has not complied with certain covenants of loan and financing agreements entered into withfinancial institutions as at December 31, 2017, and has not obtained waiver from some of thosefinancial institutions until the present date. In accordance with the Brazilian accounting practicesand the IFRS issued by IASB, considering that the Company and its controlled companies did not havethe unconditional right to postpone the settlement of the obligations recorded in the individual andconsolidated statements of financial position, as at March 31, 2019, in the amounts of R$ 5,775,793thousand and R$ 7,379,114 thousand (December 31, 2018 - R$ 5,751,249 thousand and R$ 7,314,815thousand), respectively, for at least twelve months after March 31, 2019, the amounts of R$ 3,690,956thousand and R$ 5,177,576 thousand (December 31, 2018 - R$ 3,619,771 thousand and R$ 5,069,496thousand) classified in individual and consolidated non-current liabilities, respectively, should hadbeen fully classified in current liabilities. Consequently, the individual and consolidated currentliabilities, as at March 31, 2019, are understated by R$ 3,690,956 thousand and R$ 5,177,576 thousand(December 31, 2018 - R$ 3,619,771 thousand and R$ 5,069,496 thousand), respectively, and theindividual and consolidated non-current liabilities are overstated by those amounts.

4

Qualified conclusion on the individual and consolidated interim financial information

Based on our review, except for the matter mentioned in the section “Basis for qualified conclusion”,nothing has come to our attention that causes us to believe that the accompanying individual andconsolidated interim financial information included in the quarterly information referred to abovehas not been prepared, in all material respects, in accordance with CPC 21 (R1) and IAS 34, andpresented in accordance with the standards issued by CVM applicable to the preparation of QuarterlyInformation.

Emphasis

Plea Bargain Agreement, Leniency Deal and Independent Investigation

As described in Note 32 to the individual and consolidated interim financial information, in May 2017,some executives and former executives of the Group J&F Investimentos S.A. (J&F), entered into PleaBargain Agreements with the Attorney General’s Office (PGR), later blessed by the Supreme Court ofBrazil (STF). Also, in June 2017, J&F entered into a Leniency Deal with MPF. On August 24, 2017, MPF5th Chamber blessed the Leniency Deal entered into and on October 11, 2017 the federal regularjudge of the 10th Federal Court of Distrito Federal, on a justification hearing, also approved in courtthe mentioned deal.

In April 2018, the internal investigation imposed by the Agreement was concluded, throughspecialized, external and independent professionals in relation to the Company, corroborating in largepart the irregularities in the Annexes of the Collaboration. In the fourth quarter of 2018, at therequest of the Federal Prosecutor's Office to the Investigation Team, additional procedures wereinitiated for the investigation now completed. The complementary scope refers exclusively to factsnarrated in Leniency Agreement and topics already addressed in said completed investigation. OnMarch 25, 2019, these professionals completed the supplementary investigation.

In addition, the Parent Company J&F investigations remains open. Our review report contains nochanges to this matter.

ICMS to be recovered

As described in Note 9 and Note 33 to the individual and consolidated interim financial information,which describes the actions that the Company has prioritized in order to maximize the realization ofICMS credits that are conditioned mainly in the expectation of increased sales of pulp to the marketand the granting of incentives by the government of the State of Mato Grosso do Sul to pay suppliersto be hired under the project to expand production. In addition, this management plan requiresobtaining resources that may be impacted by the final resolution of the conflicts between theCompany's shareholders, which will be rendered by the arbitral tribunal, at an undefined date.Our review report are not modified in respect of this matter.

Other matters

Statements of value added

We also reviewed the individual and consolidated statements of value added (DVA), for the three-month period ended March 31, 2019, prepared by the Company’s Management, whose disclosure inthe interim financial information is required in accordance with the standards issued by CVM andconsidered as supplemental information by the International Financial Reporting Standards (IFRS),which do not require the disclosure of the statement of value added. These statements have beensubject to review procedures performed in conjunction with the review of the Quarterly Information(ITR), with the purpose of concluding that they are reconciled with the individual and consolidatedinterim financial information and accounting records, as applicable, and if their form and content arein accordance with the criteria defined in Technical Pronouncement CPC 09 - "Statement of AddedValue".

5

Based on our review, we are not aware of any fact that would lead us to believe that these statementsof value added were not prepared, in all material respects, in accordance with the criteria set forthin this Technical Pronouncement and in a consistent manner in relation to the interim accountinginformation, individual and consolidated, taken as a whole.

Audit and review of the prior year and period, respectively, amounts

The financial statements for the year ended December 31, 2018, presented for comparison purposes,were audited by us, in which we issued a report, dated March 25, 2019, containing a modification onthe same subject mentioned in the "Basis for qualified conclusion" to the interim accountinginformation, individual and consolidated.

The individual and consolidated interim financial information for the quarter ended March 31, 2018presented for comparison purposes were reviewed by us, in which we issued a report dated May 11,2018, containing a modification on the same subject mentioned in the section "Basis for qualifiedconclusion" on the interim, individual and consolidated accounting information.

The accompanying financial information has been translated into English for the convenience ofreaders outside Brazil.

São Paulo, May 15, 2019.

BDO RCS Auditores Independentes SSCRC 2 SP 013846/O-1

Paulo Sérgio TufaniAccountant CRC 1 SP 124504/O-9


Statements of financial positionAs at March 31, 2019 and December 31, 2018(In thousands of Brazilian Reais)

Assets Liabilities

Note 03/31/2019 12/31/2018 03/31/2019 12/31/2018 Note 03/31/2019 12/31/2018 03/31/2019 12/31/2018Current CurrentCash and cash equivalents 5.1 362,038 310,419 846,196 610,591 Loans and financing 17 2,084,837 2,131,478 2,201,538 2,218,319Trade accounts receivable 6 1,251,132 1,238,398 700,869 651,016 Trade accounts payable 16 217,655 226,085 216,822 227,526Inventories 8 368,860 368,265 608,025 654,030 Leases payables 18 137,179 - 138,076 -Recoverable taxes 9 200,279 220,012 201,246 220,492 Intercompany payables 7 134,189 118,447 12,224 28,007Advances to suppliers 10 31,849 12,364 31,908 12,423 Tax liabilities, payroll and social charges 19 92,313 141,893 99,485 150,662Other accounts receivable 7 - 3,268 - 9 Derivatives payable 13,794 13,829 13,794 13,829Other current assets 44,365 43,602 44,730 44,080 Proposed dividends - 7,636 - 7,636Total current 2,258,523 2,196,328 2,432,974 2,192,641 Other current liabilities 2,321 5,532 30,735 38,239

Total current 2,682,288 2,644,900 2,712,674 2,684,218

Noncurrent NoncurrentFinancial investments 5.2 163,066 160,621 220,570 217,802 Loans and financing 17 3,690,956 3,619,771 5,177,576 5,096,496Recoverable taxes 9 1,040,126 1,039,931 1,040,141 1,039,944 Trade accounts payable 16 4,012 4,536 4,012 4,536Advances to suppliers 10 95,444 97,152 95,444 97,152 Leases payables 18 523,259 - 526,051 -Deferred income and social contribution taxes 20 3,815 37,368 3,815 37,368 Intercompany payables 7 1,453,823 1,444,112 - -Deposit, guarantees and others 5,537 5,656 6,026 6,039 Provision for procedural risks 21 11,203 9,167 11,203 9,167Other noncurrent assets 14,994 14,943 14,998 14,947 Provision for losses on controlled companies 12 - 36,961 - -

1,322,982 1,355,671 1,380,994 1,413,252 Total noncurrent 5,683,253 5,114,547 5,718,842 5,110,199

Biological assets 11 2,729,516 2,668,744 2,729,516 2,668,744 Equity 22Investments 12 253,614 104,018 - - Capital stock 1,788,792 1,788,792 1,788,792 1,788,792Fixed assets 13 4,278,692 4,306,058 4,287,725 4,314,798 Tax incentive reserve 1,000,831 998,160 1,000,831 998,160Intangible assets 14 5,172 5,782 79,618 82,136 Legal reserve 9,432 9,432 9,432 9,432Rights of use 15 654,090 - 657,737 - Reserve for expansion 22,906 22,906 22,906 22,906Total noncurrent 9,244,066 8,440,273 9,135,590 8,478,930 Special reserve 7,636 - 7,636 -

Cumulative conversion adjustments 62,910 57,864 62,910 57,864Accumulated profit 244,541 - 244,541 -Total equity 3,137,048 2,877,154 3,137,048 2,877,154

Total assets 11,502,589 10,636,601 11,568,564 10,671,571 Total liabilities and equity 11,502,589 10,636,601 11,568,564 10,671,571

The accompanying notes are an integral part of the individual and consolidated intermediary financial information

Parent company Consolidated Parent company Consolidated

6


Statements of operationsFor the periods ended March 31, 2019 and 2018(In thousands of Brazilian Reais)

Note 03/31/2019 03/31/2018 03/31/2019 03/31/2018Net revenue 23 884,200 883,570 1,179,101 1,112,218Cost of goods sold 25 (428,974) (410,273) (481,685) (446,526)Gross profit 455,226 473,297 697,416 665,692

Operating revenues/(expenses)Administrative and general 25 (28,842) (24,007) (31,385) (26,247)Selling and logistics 25 (49,231) (49,694) (104,213) (107,091)Fair value of biological assets 11 54,658 33,031 54,658 33,031Equity in earnings (losses) of controlled companies 12 181,806 128,350 - -Other revenues, net 27 (2,752) 56,659 (2,822) 54,260

610,865 617,636 613,654 619,645

Net financial income (loss) 26Financial (expenses) (306,091) (194,995) (309,501) (197,179)Financial revenues 5,599 4,955 6,127 5,146Exchange rate gains (losses), net (29,608) (22,237) (29,478) (22,248)

280,765 405,359 280,802 405,364

Income and social contribution taxes 20Current - (53,605) (37) (53,610)Deferred (33,553) (16,222) (33,553) (16,222)Net income for the period 247,212 335,532 247,212 335,532

Earnings per thousand shares 0.16 0.22 0.16 0.22


Parent company Consolidated

Income before provision for income and social contribution taxes

Income before financial revenues (expenses) and taxes

7


Statements of comprehensive income (loss)For the periods ended March 31, 2019 and 2018(In thousands of Brazilian Reais)

03/31/2019 03/31/2018 03/31/2019 03/31/2018Net income for the period 247,212 335,532 247,212 335,532Exchange rate gains (losses) on investments 5,046 3,606 5,046 3,606Total comprehensive income 252,258 339,138 252,258 339,138



8


Statements of changes in equity(In thousands of Brazilian Reais)

Capital stock Tax incentive reserve Legal reserve Reserve for expansionSpecialreserve

Cumulative translationadjustments Accumulated (losses) Total

Balances as at December 31, 2017 1,788,792 849,487 - - - 12,334 (627,233) 2,023,380

Net income for the period - - - - - - 335,532 335,532Tax incentive reserve - 67,086 - - - - (67,086) -Exchange rate gains (losses) on investments 3,606 - 3,606

Balances as at March 31, 2018 1,788,792 916,573 - - - 15,940 (358,787) 2,362,518

Balances as at December 31, 2018 1,788,792 998,160 9,432 22,906 - 57,864 - 2,877,154

Net income for the period - - - - - - 247,212 247,212Tax incentive reserve - 2,671 - - - - (2,671) -Exchange variation on investments - - - - - 5,046 - 5,046Special reserve for mandatory dividend not distributed - - - - 7,636 - - 7,636

Balances as at March 31, 2019 1,788,792 1,000,831 9,432 22,906 7,636 62,910 244,541 3,137,048


Profit reserves

9


Statements of cash flowsFor the periods ended March 31, 2019 and 2018(In thousands of Brazilian Reais)

03/31/2019 03/31/2018 03/31/2019 03/31/2018Cash flows from operating activities

Adjustments to reconcile income (loss) to cash and cash equivalentsfrom operating activities:Depreciation and amortization 54,412 64,590 64,344 65,924Depletion 63,251 42,153 63,251 42,017Appreciation amortization 295 295 295 295Depreciation Rights of use 25,078 - 25,263Residual value of assets written off of fixed assets 440 122,877 440 122,877Fair value of biological assets (54,658) (33,031) (54,658) (33,031)Finance charges – interest and exchange rate gains (losses) 160,868 157,859 204,750 195,422Finance charges – interest and exchange rate gains (losses) – related parties 44,403 38,577 - -Provision for procedural risks 2,526 9,381 2,526 9,381Derivatives 13,794 - 13,794 -Trade accounts receivable –exchange rate gains (losses) (28,113) (5,511) (28,113) (5,511)Equity in earnings (losses) of controlled companies (181,806) (128,350) - -

381,255 674,198 572,694 802,738

Decrease (increase) in assetsTrade accounts receivable 13,520 (159,579) (20,990) (221,474)Inventories 12,666 20,633 53,886 55,591Recoverable taxes 19,538 (136,969) 19,055 (136,892)Advances to suppliers (17,777) (1,068) (17,777) (1,042)Other current and non-current assets (695) 11,277 (677) 11,378

Increase (decrease) in liabilitiesTrade accounts payable (8,954) 2,490 (15,767) (7,323)Leases payable 640,897 - 644,490 -Other liabilities (15,783) (16,798) (15,783) (16,798)Tax liabilities, payroll and social charges (47,153) (30,714) (48,723) (32,157)Other current and noncurrent liabilities (17,530) 1,776 (22,021) 11,945Net cash from operating activities 959,984 365,246 1,148,387 465,966

Income tax and social contribution paid (2,427) (33,020) (2,472) (33,070)

Net cash from operation activities 957,557 332,226 1,145,915 432,896

Cash flows from investing activitiesIncrease in biological assets (79,525) (71,249) (79,525) (71,249)Additions to fixed and intangible assets (29,977) (7,373) (30,383) (7,414)Sale of fixed assets 1,859 154,510 1,859 154,510Financial investments (2,445) (2,684) (2,445) (250)Increase in rights of use (679,168) - (683,000) -Intercompany receivables 3,268 (22) 9 (9)Net cash from investing activities (785,988) 73,182 (793,485) 75,588

Cash flows from financing activitiesLoans and financing raised 245,513 355,885 245,513 355,885Amortization of loans and financing - principal (205,221) (379,186) (205,221) (379,186)Amortization of loans and financing - interest (92,799) (112,108) (96,907) (116,253)Amortization of loans and financing – exchange rate gains (losses) (64,276) (50,660) (64,200) (50,662)Amortization of intercompany loans - interest (3,195) (3,830) - -Amortization of intercompany loans – exchange rate gains (losses) 28 (42) - -Net cash from financing activities (119,950) (189,941) (120,815) (190,216)

Effects of exchange rate gains (losses) on cash - - 3,990 (1,034)

Change in cash and cash equivalents, net 51,619 215,467 235,605 317,234

Cash and cash equivalents at beginning of year 310,419 161,013 610,591 377,507Cash and cash equivalents at end of year 362,038 376,480 846,196 694,741

Change in cash and cash equivalents, net 51,619 215,467 235,605 317,234



Income (loss) before income and social contribution taxes 280,765 405,359 280,802 405,364

10


Statements of value addedFor the periods ended March 31, 2019 and 2018(In thousands of Brazilian Reais)

03/31/2019 03/31/2018 03/31/2019 03/31/2018RevenuesSales of merchandise, products and services 922,507 901,034 1,217,748 1,129,931Other operating revenues (expenses), net 52,105 44,911 52,066 42,519Transfers related to the construction of own assets 1,211 1,550 1,211 1,550

975,823 947,495 1,271,025 1,174,000

Inputs acquired from third partiesCosts of goods sold, materials, energy, third-party services and others (267,412) (267,709) (352,702) (358,455)Gross value added 708,411 679,786 918,323 815,545

Depreciation, amortization and depletion (117,958) (106,743) (138,465) (107,941)

Net value added generated by the entity 590,453 573,043 779,858 707,604

Value added received in transferEquity in earnings (losses) of controlled companies 181,806 128,350 - -Financial revenues 5,599 4,955 6,127 5,146Total value added to be distributed 777,858 706,348 785,985 712,750

Value added distributionPersonnelDirect compensation 45,565 47,995 47,741 49,888Benefits 27,922 24,508 29,166 25,535FGTS (Severance Pay Fund) 4,784 4,574 5,021 4,775

78,271 77,077 81,928 80,198

Taxes, fees and contributionsFederal 72,063 94,544 72,480 94,838State 19,489 (42,933) 19,517 (42,926)Municipal - - 340 248

91,552 51,611 92,337 52,160

Return on debt capitalInterest 173,449 221,041 172,862 220,115Rents 25,624 25,420 26,029 25,956Others 161,750 (4,333) 165,617 (1,211)

360,823 242,128 364,508 244,860Return on equity capitalNet income for the period 247,212 335,532 247,212 335,532

Total value added distributed 777,858 706,348 785,985 712,750



11


Notes to the individual and consolidated interim financial informationAs at March 31, 2019(In thousands of Brazilian Reais)

12

1. Operations

Eldorado Brasil Celulose S.A. (the “Company” or “Eldorado”) is a closely heldcorporation, whose registration with the Brazilian Securities and ExchangeCommission (CVM) was obtained on June 6, 2012 in the category shares tradedover the counter, established under Brazilian laws, located in the municipalityof São Paulo, state of São Paulo (Brazil).

The Company’s individual and consolidated interim financial information forthe period ended March 31, 2019 includes the Company and its subsidiaries.The Company and its subsidiaries are primarily engaged in the production andsale of bleached short fiber eucalyptus pulp and the processing of biomass togenerate power. The Company completed the construction of its plant in themunicipality of Três Lagoas, state of Mato Grosso do Sul, and startedproduction in December 2012.

As of March 31, 2019, Eldorado's annual production capacity is around 1.7million tons of bleached eucalyptus pulp. The wood we use to producecellulose is 98.6% from the state of Mato Grosso do Sul and the rest of thestate of Mato Grosso, a climatically and topographically well-adapted area foreucalyptus growth.

The Company has current liabilities in excess of current assets in the amountof R $ 423,765 in the Parent Company and in the amount of R $ 279,700 in theConsolidated, part of the impact is the devaluation of the Real against the USDollar. Eldorado continues to make no effort in its liability managementprocess to reduce its leverage. To this end, the Company has been seekingalternatives to access several sources of long-term financing in order toimprove its capital structure.

As soon as certain political and market conditions are settled, the Companyintends to seek new long-term financing agreements in order to adjust itsdebt capital structure between short and long term. As far as these conditionsdo not occur, the Company uses the good operating moment along with thefavorable cash position (totaling R$ 525,104 Parent Company and R$ 1,066,766Consolidated) in order to maintain the continual deleveraging process.

The actions of liability management added to the operational efficiency of theCompany aim to allow Eldorado to increase its liquidity indexes andconsequently its net working capital.



13

2. List of subsidiaries

Equity InterestCountry 03/31/2019 12/31/2018

SubsidiariesCellulose Eldorado Austria GmbH Austria 100% 100%Rishis Empreendimentos e Participações S.A. Brazil 100% 100%

Indirect SubsidiariesEldorado USA Inc. United States 100% 100%Eldorado Intl. Finance GmbH Austria 100% 100%Cellulose Eldorado Asia China 100% 100%

3. Preparation and presentation of the interim financial information

a. Statement of compliance (in respect of the IFRS and CPC standards)

The individual and consolidated interim financial information has beenprepared in accordance with International Financial Reporting Standards(IFRS) issued by the International Accounting Standards Board (IASB), andalso in accordance with the pronouncements, interpretations andguidance issued by the Accounting Pronouncements Committee (CPC),approved by resolutions of the Federal Association of Accountants (CFC)and rules of the Brazilian Securities and Exchange Commission (CVM).

After review of the Individual and Consolidated interim financialinformation by the Board of Directors at the meeting held on May 15,2019, they were authorized for issue by the Company.

b. Basis of measurement

The individual and consolidated interim financial information has beenprepared on the historical cost basis except for the following materialitems recognized in the statements of financial position:

§ Derivative financial instruments are measured at fair value;§ The financial instruments of debt are measured at fair value through

profit or loss; and§ Biological assets measured at fair value are recognized in the

statement of profit or loss in line item "Fair value of biological assets".

c. Use of estimates and judgments

The preparation of the individual and consolidated interim financialinformation in accordance with IFRS and CPC standards requiresmanagement to make judgments, estimates and assumptions that affectthe application of accounting policies and the reported amounts of assets,liabilities, income and expenses. Actual results may differ from theseestimates.



14

Estimates and underlying assumptions are reviewed on an ongoing basis.Revisions to accounting estimates are recognized in the year in which theestimates are revised and in any future years affected.

(i) Judgments

The information on judgments made in the application of the accountingpolicies that have material effects on the amounts recognized in theindividual and consolidated interim financial information is included in thefollowing notes to the financial statements:

§ Note 31 – operating leases.

(ii) Uncertainties about assumptions and estimates

The information on uncertainties about assumptions and estimates thathave a significant risk of resulting in a material adjustment in the periodended March 31, 2019 is included in the following notes:

§ Note 8 – inventory valuation allowance;§ Note 11 – biological assets;§ Note 13 – impairment test;§ Note 20 – recognition of deferred tax assets: availability of future

taxable profits against which tax losses can be utilized;§ Note 21 – recognition and measurement of provisions and procedural

risks: main assumptions on the probability and magnitude of the cashoutflows.

d. Fair value measurement

When measuring the fair value of an asset or a liability, the Company usesas much as possible observable market inputs. Additional information onthe assumptions used in the fair value measurement is included in thefollowing notes:

§ Note 11 – biological assets;§ Note 30 – financial instruments.

e. Functional and presentation currency

This individual and consolidated interim financial information is presentedin Brazilian reais, which is the Company’s functional currency. Allfinancial information presented in Brazilian reais has been rounded to thenearest thousand, unless otherwise indicated.



15

4. Summary of significant accounting policies

The significant accounting policies applied in the preparation of this interimfinancial information are set out below. These policies have been appliedconsistently to all periods presented.

a. Basis of consolidation

(i) Subsidiaries

The Company controls an entity when it is exposed to, or has rights to,variable returns from its involvement with the entity and has the ability toaffect those returns through its power over the entity. The interimfinancial information of subsidiaries are included in the consolidatedinterim financial information from the date that control commences untilthe date that control ceases.

(ii) Transactions eliminated on consolidation

Intragroup balances and transactions, and any unrealized income andexpenses arising from intragroup transactions, are eliminated in preparingthe consolidated interim financial information.

b. Revenue

Revenue is recognized on an accrual basis. Revenue comprises the fairvalue of the consideration received or receivable for the sale of goods andservices in the ordinary course of the activities of the Company and itssubsidiaries.

Revenues are measured net of sales taxes, returns, trade discounts andrebates.

In accordance with Pronuncement nº 47 (Revenue from Contracts withClients) / IFRS 15, emited by Comitê de Pronunciamentos, the Companyand it´s subsidiaries recognize revenue when, and only when:

§ The amount of revenue can be reliably measured;§ The Company and its subsidiaries have transferred to the buyer the

control of the asset, for the amount that the entity expects to beentitled to receive;

§ It is probable that economic benefits flow to the Company and itssubsidiaries;

§ The expenses incurred or to be incurred in respect of the transactioncan be reliably measured.



16

c. Functional and reporting currency

(i) Transactions in foreign currency

Transactions in foreign currencies are translated to the respectivefunctional currencies of the entities at the exchange rates at the dates ofthe transactions.

Monetary assets and liabilities denominated in foreign currencies aretranslated to the functional currency at the exchange rate at that date.The differences in foreign currencies resulting from retranslation aregenerally recognized in profit or loss.

(ii) Foreign operations

Assets and liabilities of foreign operations are translated into BrazilianReal (R$) at the exchange rates at the balance sheet date. Revenues andexpenses of foreign operations are translated into Brazilian Real (R$) atthe average exchange rates during the period.

The differences in foreign currencies generated on the translation to thepresentation currency are recognized in other comprehensive income andin cumulative translation adjustment in equity.

d. Financial instruments

The Company recognizes loans and receivables issued at the date theywere originated. All other financial instruments are recognized initially atthe trading date in which the Company becomes a party to thecontractual provisions of the instruments.

The Company derecognizes a financial asset when the contractual rightsto the cash flows from the asset expire, or when it transfers the rights toreceive the contractual cash flow in a transaction in which substantiallyall the risks and rewards of ownership of the financial asset aretransferred, or it neither transfers nor retains substantially all the risksand rewards of ownership and does not hold the control over thetransferred asset.

The Company derecognizes a financial liability when its contractualobligations are discharged, cancelled or expire.

§ Financial assets at fair value through profit or loss

A financial asset is classified as at fair value through profit or loss if it isclassified as held-for-trading or is designated as such on initialrecognition. Subsequent to initial recognition, transaction costs arerecognized in profit or loss as incurred. Financial assets at fair valuethrough profit or loss are measured at fair value and changes in the fairvalue of these assets are recognized in profit or loss.



17

§ Cash and cash equivalents

Cash, banks, and short-term financial investments are the items of thestatement of financial position that are presented in the statement ofcash flows as cash and cash equivalents of immediate liquidity withredemption periods of three months or less from the investment date,subject to an insignificant risk of change in value.

§ Financial assets measured at amortized cost

Such assets are recognized initially at fair value plus any attributabletransaction costs. Subsequent to initial recognition, financial assets aremeasured at amortized cost using the effective interest method.

§ Non-derivative financial liabilities

Financial liabilities are initially measured at fair value, less any directlyattributable transaction costs. Subsequent to initial recognition, theseliabilities are measured at amortized cost using the effective interestmethod.

§ Impairment of financial assets

Financial assets not classified as fair value through profit or loss areassessed at the end of each reporting period to determine whether thereis objective evidence of impairment.

The amount of the impairment loss is measured as the difference betweenthe asset’s carrying amount and the present value of estimated futurecash flows, discounted at the financial asset’s original effective interestrate. Impairment losses are recognized in profit or loss and reflected in anallowance account. When the Company considers that there is no realisticperspective of recovery of the asset, the amount is written off. If theamount of the impairment loss subsequently decreases and the decreasecan be objectively related to an event occurring after the impairment wasrecognized, the previously recognized impairment loss is reversed throughprofit or loss.

§ Derivative financial instruments

Derivatives are initially recognized at fair value and any attributabletransaction costs are recognized in profit or loss when incurred.Subsequent to initial recognition, derivatives are measured at fair valueand any gains and losses are recognized in profit or loss.



18

§ Social capital

Additional costs directly attributable to the issue of shares are recognizedas a deduction from equity, net of any tax effects.

e. Inventories

Inventories are stated at the lower of cost and net realizable value. Thecost of inventories is based on the weighted average cost method. Netrealizable value is the estimated selling price in the ordinary course ofbusiness, less the estimated costs of completion and selling expenses. Thecost of standing timber transferred from biological assets is measured atthe cost determined at the date of harvest.

f. Fixed assets

Fixed assets are carried at the historical cost of acquisition orconstruction, less accumulated depreciation and any accumulatedimpairment losses.

Any gains or losses arising on the disposal or write-off of an item of fixedassets are recognized in profit or loss.

Financial charges on borrowings that are directly attributable to theacquisition or construction of the assets are capitalized as part of thecosts of these assets. Borrowing costs that are not directly related to theassets are capitalized based on an average funding rate on the balance ofconstruction in progress. These costs are amortized over their estimateduseful lives.

Depreciation

Depreciation is calculated based on the residual value using the straight-line method over the estimated useful life of each asset and is generallyrecognized in profit or loss (except land and construction in progress).

The estimated useful lives, the residual values, and the depreciationmethods are reviewed at the end of the reporting period, and the effectsof any changes in estimates are accounted for prospectively. The annualdepreciation rates are as follows:



19

Weighted annual depreciation rates

g. Biological assets

Biological assets comprise renewable plantation eucalyptus forests forproduction of pulp used in paper manufacturing. These assets aremeasured at fair value less costs to sell, whose impacts are recognized inthe statement of profit or loss for the year.

Depletion is measured based on the quantity of wood harvested from theforests.

h. Operating leases

(i) Right to use leasing assets – explanatory note 15

The Company and its subsidiaries adopted IFRS 16 / CPC 6 (R2) - Leasingoperations on January 1, 2019, considering as a basis of analysis thecontracts with identifiable assets, whose control of the use of the asset,economic benefits, between other aspects provided for in thepronouncement, are exclusive to the Company and its subsidiaries,regardless of the legal form given to the contract. Service contracts andsupply agreements were treated as leases when there is an identifiableasset.

At the date of the initial adoption, the Company and its subsidiaries usedthe modified retrospective approach, choosing to measure the cost of theright of use of the leasing asset to the amount equivalent to the presentvalue of the lease liability payable as from January 1 2019, without anyupdating of comparative information.

The depreciation of the right of use is calculated based on the term ofvalidity of each lease.



20

Lease agreements with a term of less than twelve months and anidentifiable asset with a market value of less than twenty thousandbrazillian reais were not included in IFRS 16.

(ii) Provision for leasing – explanatory note 18

At the date of commencement, the measurement of the liability leaseprovision was calculated based on the present value of the fixed leasepayments that were not made until that date. The amounts of theinstallments payable were discounted by the incremental rate on loan(discount rate), plus other contractual obligations set forth in the leaseagreements adjusted to the present value.

The Company and its subsidiaries opted to define a single discount ratefor leases with similar characteristics, considering as a criterion for thedefinition of the discount rate the financial costs of loans and financingfor the acquisition of similar assets.

The discount rate used for the calculation of the present value of thelease provision of identified assets and, consequently, for the monthlyappropriation of financial interest, is between 9.5% and 12.44%, inaccordance with the of each lease.

The value of the adjustment to the present value will be appropriatedmonthly as financial interest in the income for the year.

(iii) Take or pay contracts

Operating lease payments (take or pay) are recognized in inventory at theacquisition of chemical products and, subsequently, allocated to cost ofpulp in the production process, as mentioned in Note 31.

i. Intangible assets

(i) Appreciation of right-of-use of concession

Goodwill resulting from a business combination is stated by fair value, netof impaimrnet.

Goodwill impairment is anually tested, or more frequently when there isna indication that it may presente na impairment. If the recoverable isless than the accounted value the loss is recognized direccly in the incomeof the year and not reversed in subsequent periods.



21

When the disposal of na asset with the corresponding goodwill allocated,the goodwill attributable value is included in the determination of theprofit or loss of the disposal.

(ii) Other intangible assets

Other intangible assets, including terminal concession and software,acquired by the Company have definite useful lives and are measured atcost, less accumulated amortization and any accumulated impairmentlosses.

(iii)Amortization

The amortization is calculated to amortize the cost of items of theintangible asset, less its estimated residual values, using the straight-linemethod based on the estimated useful lives of the items. Theamortization is generally recognized in profit or loss. The estimated usefullives are as follows:

j. Impairment

At the end of each reporting period, the Company reviews the carryingamounts of its assets to determine where there is any indication thatthose assets have suffered an impairment loss. If any such indicationexists, the recoverable amount of the asset is estimated.

For the purposes of impairment testing, assets are grouped at the smallestgroup, which generates cash inflows that are largely independent fromthe cash inflows of other assets or cash Generation Unit (CGU). Goodwillresulting from a business combination is allocated to the CGU or groups ofCGUs that are expected to benefit from the synergies of the combination.

The recoverable amount of an asset or CGU is the higher of value in useand fair value less costs of disposal. The value in use is based onestimated future cash flows, discounted to their present value using apre-tax discount rate that reflects current market assessments of the timevalue of money and the risks specific to the asset or CGU.

An impairment loss is recognized if the carrying amount of an asset orCGU exceeds its recoverable amount. Impairment losses are recognized inprofit or loss.



22

An impairment loss in respect of goodwill is not reversed. For otherassets, an impairment loss is reversed only to the extent that the carryingamount of the asset does not exceed the carrying amount that would havebeen determined, less depreciation or amortization, had no impairmentloss been recognized.

k. Trade accounts payable

Refer to amounts due to suppliers in the normal course of the business ofthe Company and its subsidiaries.

l. Provisions

A provision is recognized as a liability when the Company has presentobligations that can be reliably estimated, and it is probable that anoutflow of economic benefits will be required to settle the obligation.

Provisions are determined by discounting the expected future cash flowsat a pre-tax rate that reflects current market assessments of the timevalue of money and the risks specific to the liability. The finance costsincurred are recognized in profit or loss.

m. Earnings per share

Basic earnings per share are calculated based on the profit for the yearand the weighted average number of shares outstanding during the year.The Company does not have instruments that could potentially dilute thenumber of shares.

n. Income tax and social contribution tax

Income (loss) from income tax and social contribution tax includes currentand deferred income taxes, which are recognized in profit or loss unlessthey are related to business combinations or items directly recognized inequity or in other comprehensive income.

Current and deferred income tax and social contribution tax arecalculated based on the rates of 15%, plus a 10% surtax on taxable profitexceeding R$ 240 for income tax and 9% on taxable profit for socialcontribution tax on net income, and consider the offset of income tax andsocial contribution tax losses, limited to 30% of the taxable profit.

(i) Current taxes

The current tax is the expected tax payable or receivable on taxableprofit or loss for the year and any adjustment to taxes payable related toprior years. It is calculated at tax rates enacted or substantially enactedby the end of the reporting period.



23

(ii) Deferred taxes

The deferred tax is recognized on temporary differences and tax lossesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used for tax purposes.Deferred taxes are not recognized for the following temporarydifferences:

§ The initial recognition of assets and liabilities in a transaction otherthan a business combination, and that does not affect either theaccounting or taxable profit or loss;

§ Differences related to investments in subsidiaries, branches andassociates, and interests in joint ventures, when it is probable that theCompany will not reverse in a foreseeable future;

§ A deferred tax is not recognized for taxable temporary differencesresulting from the initial recognition of goodwill.

Deferred tax assets and liabilities are offset if there is a legallyenforceable right to offset current tax assets and liabilities, and if theyrelate to taxes levied by the same tax authority on the same taxableentity.

A deferred tax asset is recognized for unused tax losses, tax credits anddeductible temporary differences to the extent that it is probable thatfuture taxable profits will be available against which they can be utilized.Deferred tax assets are reviewed at each reporting date and are reducedto the extent that it is no longer probable that the related tax benefit willbe realized.

The deferred tax is measured at the rates that are expected to be appliedon temporary differences when they reverse, based on the laws that havebeen enacted or substantially enacted by the end of the reporting period.

o. Employee benefits

Defined contribution pension plan

A defined contribution plan is a postemployment benefit plan under whichan entity pays fixed contributions to a separate entity (pension fund) andwill not have a legal or constructive obligation to pay additional amounts.Obligations for contributions to defined contribution pension plans arerecognized as employee benefit expenses in profit or loss in the periods inwhich the employees provide services.



24

p. New standards and interpretations not yet adopted

A number of new international standards, amendments to standards andinterpretations are effective for periods beginning after January 01, 2020.The Company has not early adopted these amendments in the preparationof this interim financial information. The Company does not plan to adoptthese standards early.

(i) ICPC 22 (IFRIC 23) – Uncertainty over Taxes on Profits

The interpretation, effective as of January 1, 2019, clarifies how to applythe recognition and measurement requirements when there is uncertaintyabout the treatment of taxes on profit.

The uncertainty should be reflected in the measurement to provide thebest prediction of uncertainty resolution, based on the (i) most likely or(ii) expected value approach.

IFRIC 23 does not introduce new disclosures but reinforces the need tocomply with existing disclosure requirements on (i) judgments made; (ii)assumptions or other estimates used; and (iii) the potential impact ofuncertainties that are not reflected in the financial statements.

Management did not identify impacts resulting from this change.

(ii) Other amendments

The new or revised standards below are not expected to have a materialimpact on the Company's financial information.

§ Amendments to CPC 10 (IFRS 2) Shared-based payment related to theclassification and measurement of certain share-based paymenttransactions;

§ Amendments to CPC 36 Consolidated Financial Statements (IFRS 10) andCPC 18 Investments in Associates (IAS 28) in relation to sales orcontributions of assets between an investor and its associate or its jointventure.

The Accounting Pronouncements Committee has not yet issued accountingpronouncements or amendments to existing pronouncements equivalent toall new IFRS. Therefore, the early adoption of these IFRS is not permittedfor entities that disclose their financial information in accordance withaccounting practices adopted in Brazil.



25

5. Cash and cash equivalents and financial investments

5.1. Cash and cash equivalents

(a) These are daily liquidity investments in Bank Certificate of Deposit ("CDB") of top-tier financial institutions with return that approximates the Interbank Certificate ofDeposit (CDI) rate.

5.2. Financial investments – non-current assets

(a) Fixed-income investment with Caixa Econômica Federal, with gross return based onCDI variation. These funds are given in guarantee of financial investment to theissue of debentures in FI-FGTS, as shown in note 17.4;

(b) Investment in CDB with Caixa Econômica Federal, with gross return based on CDIvariation. These funds are given in guarantee of financial investment to the issue ofNCE, as shown in note 17.2. (i) and (v);

(c) Funds in checking account with Banco do Brasil Paris. These funds are given inguarantee to a Term Loan operation, as stated in Note 17.2 (viii).

6. Trade accounts Receivable



26

The aging list of trade receivables is as follows:

The Company has firm guarantees and financial instruments to protect creditin order to mitigate possible risks of default by its clients in higher riskmarkets. In addition, through its policies, the credit committee constantlyanalyzes and monitors all credit limits granted and performs active collectionof outstanding and / or overdue amounts in all the markets in which itoperates. The accounts receivable are equivalent to the estimated need toestablish an estimated credit loss in doubtful accounts, mainly to customers incollection or judicial recovery, with a low probability of recovering thereceivables.



27

7. Related-party transactions

The main intercompany balances in balance sheet accounts and transactionsaffecting income (loss) accounts result from operations conducted at marketconditions and prices agreed between the parties and showed as follows:



28

(i) Guarantee granted by the holding J&F Investimentos S.A., for warranty of loansoperations that the Company has with banks;

(ii) Export financing granted by Cellulose Eldorado Austria GmbH to Eldorado Brasil CeluloseS.A with a five-year term and interest rate of 6% p.a. + exchange differences;

(iii) Export financing granted by Eldorado Intl. Finance GmbH to Eldorado Brasil Celulose S.Awith a five-year term, with interest rate of 9.8% p.a. + exchange differences;

(iv) Refers to amounts payable relating to various transactions, among them: freight on pulptransportation, purchase of consumables for use in the cafeteria, rental of administrativebuilding and data center, etc.;

(v) These refer to acquisition of consumables for use in the cafeteria and Christmas kits;(vi) This refers to reimbursements related to rents and corporate expenses.

7.1. Management compensation

The expense on key management personnel compensation includes directorsand officers, in the following amounts for the periods ended:

(a) Benefits include fixed compensation (salaries, vacation pay and year-end bonus), socialsecurity contributions (INSS), severance pay fund (FGTS), bonus and others. All officersare parties to employment contracts governed by the Consolidated Labor Laws (CLT) andfollow all legal requirements related to compensation and benefits.

8. Inventories



29

9. Taxes recoverable

(i) ICMS

The Company has an ICMS balance accumulated over the last years derived fromcredits on the purchase of inputs used in the production process, assets classified asfixed assets for implementation of its plant in Três Lagoas - MS, and fiscal incentivepackage granted by the Government of Mato Grosso do Sul for application in thecurrent operation and future industrial expansion.

The Company has prioritized a series of actions to maximize the utilization of suchcredits and currently no losses on their realization are expected. Among the actionsplanned by the Company, we highlight the increase in sales of pulp to the domesticmarket, which would allow the realization of part of those credits, and obtaining fromthe state government of Mato Grosso do Sul authorization to use the ICMS credits to paysuppliers hired in the context of the Project “Vanguarda 2.0” to expand its productioncapacity. The Company evaluates all alternatives to obtain resources for the acquisitionof machinery and equipment and assembly.



30

(ii) PIS and COFINS

Part of the credit corresponds to non-cumulative PIS and COFINS credits for theacquisition of fixed assets, such as equipment and services, as a result of thecompletion of the construction of the industrial plant put into operation at the end of2012. The Company uses this loan by offsetting with the debts of these taxes, incidenton sales in the domestic market and with income tax and social contribution payable onprofits, as well as through requests for compensation from the Federal RevenueService.

Another part of the credit is based on a favorable decision rendered by the FederalRegional Court of the 3rd Region, in a lawsuit filed by the Company to exclude the ICMSfrom the Social Contributions calculation base (PIS / COFINS), incident to domesticsales operations. The matter has already been definitively judged by the FederalSupreme Court, favorably to the taxpayers, with general repercussion, in RE 574,706. Itis awaited the judgment of the Declaration of Embargoes, proposed by the AttorneyGeneral of the National Treasury (PGFN) to clarify some points of the STF decision,which, however, can not change the merits of the action. In view of this, the Companydecided to recognize the extemporaneous credit of the amounts calculated the greaterin the last five years.

(iii) Reintegra

In October 2014, the Company adopted Decree 7.633, of December 1, 2011, whichregulated the Reintegra.

Reintegra establishes the possibility of the producer legal entity, which carries outexport of manufactured goods in the country, determining a value for purposes ofpartial or full refund of the residual tax amount existing in its production chain. TheReintegra regulation establishes that the amount will be calculated by applying thepercentage in effect at the time of the transaction to the revenue from export of goodsproduced by the legal entity.

* To apply 2,0% from Jun/18 to Aug/18.

(iv) IRRF

Refers to withholding income tax on short-term investments, realizable through offsetagainst income tax and social contribution tax.

(v) IRPJ and CSLL to offset

Related to IRPJ and CSLL in 2017, collected in advanced in compliance with the rulesfor actual profit taxation regime, which by the end of the year totaled more than theamount actually due by the Company. Based on Legal Legislation the company has theright to offset these taxes against federal taxes in 2018.



31

(vi) IRPJ and CSLL - Prepayment

Refer to corporate income tax and social contribution paid in advance based on thetaxable profit, in compliance with the rules for actual profit taxation regime. At theend of each year, the prepaid balance is realized through offset against the calculatedamount of income tax and social contribution due.

10. Advances to suppliers

(i) Refer to advances made to wood suppliers, under purchase for future delivery contracts,which will be settled upon the physical delivery of the wood. Company specialists valueand monitor forest development to mitigate risks associated to the compliance of eachcontract.

11. Biological assets

The Company’s biological assets are represented by eucalyptus forests underdevelopment, intended for the supply of wood to produce pulp, 98.6% in areaslocated in the state of Mato Grosso do Sul and the remaining in the state ofMato Grosso.

The opening and closing balances are roll-forward as follows:



32

At March 31, 2019 had a production area of 229,560 hectares (229,592hectares at December 31, 2018), not including other areas such as thepermanent preservation and legal reserve areas, in compliance with prevailingenvironmental laws.

In accordance with the hierarchy established in CPC 46 (equivalent to IFRS 13)“Fair value measurement”, the measurement of biological assets is classifiedas level 3, due to its complexity and calculation structure.

The Company used the Discounted Cash Flows method to recognize itsbiological assets at fair value. In general lines, the methodology can besummarized by the projection of forest growth and its subsequent depletion,with felling age between six and eight years, considering operatingrestrictions and annual demand.

The volume of trees to be fallen was estimated considering the averageproductivity in cubic meters of wood of each plantation per hectare at thetime of the harvest. This growth is represented by the Average AnnualIncrease (IMA) expressed in cubic meters per hectare/year. The crop handlingcosts include expenditures with the fertilization, weed control, control of antsand other pests, maintenance of roads and firebreaks, and other servicesrequired for the maintenance of the planted forests.

There was a change in the discount rate used (WACC) to 5.94% in December2018.

The Company decided to assess its biological assets on a quarterly basisbecause it understands that this procedure is sufficient to show the evolutionof the fair value of the forests.

The main points considered in estimating the fair value of biological assetswere:



33

12. Investments

Significant information about investments on subsidiaries for the periodended March 31, 2019

Significant information about investments on subsidiaries for the periodended December 31, 2018



34

Subsidiaries

Cellulose Eldorado Austria Gmbh

In December 2012, two units strategically located abroad, called Eldorado USAInc. (United States) and Cellulose Eldorado Austria GmbH (Austria), wereopened in order to meet the demand of the sales contracts entered intoabroad and the prospecting of new sales abroad. Additionally, in 2013 acommercial office was opened in China (Shanghai), continuing the expansionof the Company’s presence in the foreign market.

Eldorado Intl Finance GmbH is a company established for the issuance ofbonds in the international market so as to segregate such function from theother activities carried out by the subsidiaries of Eldorado. The company wasestablished in February 2016 and started its activities in June 2016, with theissuance of bonds.

Rishis Empreendimentos e Participações S.A.

Rishis Empreendimentos e Participações S.A. holds the rights and obligationsof the Lease Agreement No. DP-DC 01/2005 (“Lease Agreement”) entered intowith Companhia Docas do Estado de São Paulo – CODESP (“CODESP”) onDecember 02, 2005, valid up to November 04, 2029.

Rishis is a port operator, certified by the port authority (Codesp) since March05, 2015, lessee of a port facility of public use specialized in the break bulktransportation of pulp for export. It is located in the official area of theestablished port of Santos, in the area named Outeirinhos. Its total area isabout 10,000 m2 with capacity for static storage of 32,000 tonnes, moved bythree overhead cranes with telescopic spreaders of latest generation andforklifts with clamps. Rishis has controls and processes compliant withISO9001, ISO14001 and OHSAS18001 standards, whose certifications areassessed and issued by BRTUV.

The facilities, accesses and operating activities are ruled by customslegislation from the Brazilian Revenue Service, being its permit for operationspublished in the Federal Register (DOU) by means of Executive DeclaratoryAct No. 30 of May 20, 2013, effective up to November 05, 2029.

With this transaction, the Company’s management seeks to increase thelogistics operational efficiency, adding competitiveness to pulp exports.

Appreciation of right-of-use of port movement concession

The Company has recorded, as at March 31, 2019, appreciation of the right touse the port area object of a lease agreement that is being amortized for theterm of such usage right, valid up to November 05, 2029.



35

13. Fixed assets



36



37

Changes in fixed assets



38

Construction in progress and advances for capital expenditures

The outstanding amounts related to construction in progress and advances forcapital expenditures as at March 31, 2019 refer to structural improvements inthe pulp plant and surrounding areas and expenditures on basic engineering,environmental license and infrastructure woks for the construction of ProjetoVanguarda 2.0, new production line with estimaded of more than 2.3 milliontons of pulp per year.

Company assets are pledged as collateral for borrowings up to the maximumlimit of each of the debts assumed (note 17).

Review of useful life

In order to meet the requirements of CPC 27, the Company reviewed thetechnical useful life of fixed assets and found that some items should beadjusted to improve adherence to the current reality of the operation. Theassumptions used by the technical area are based on the assets operationcharacteristics: working hours, technological obsolescence, use conditions andmaintenances made.

The effects were recognized prospectively and the impact was approximatelyR $ 2 million / month from 2018.

Impairment test - fixed assets

The balances of fixed assets and other assets are reviewed annually in orderto identify evidence of impairment or whenever changes in events orcircumstances indicate that the carrying amount may not be recoverable. Inthe period, no evidence of impairment was identified.



39

14. Intangible assets

Changes in intangible assets



40

(a) These refer to the appreciation of the right-of-use of port movement concession (Note12).

Impairment of tangible and intangible assets

As at March 31, 2019, the Company reviewed the carrying amounts of itstangible and intangible assets to determine whether there was any indicationthat those assets had suffered an impairment loss and concluded that therewas no indication of impairment.

15. Rights of use



41

16. Trade payables



42

17. Loans and Financing



43

17.1. Changes in loans and financing



44

17.2. Company credit facilities

(i) Working capital financing through ACCs (advances on exchangecontracts);

(ii) BNDES (Brazilian development bank) funding: on July 22, 2011 theCompany entered into a financing agreement with Banco Nacional deDesenvolvimento Social (BNDES), amended on March 5 and August 10,2012, totaling R$2.7 billion, to build the pulp and paper plant,including the purchase of local machinery and equipment, and theimplementation of the social investments program in plantneighboring areas;

(iii)ECA (Export Credit Agency) financing agreements, disbursed onDecember 28, 2012;

(iv) On December 1, 2012, the Company carried out the 2nd issue ofsimple debentures, fully subscribed by FI-FGTS. These debentures arenonconvertible, unsecured, with additional collateral and unsecuredguarantee. The debentures were fully distributed on December 17,2012;

(v) Real-denominated Export Credit Notes (NCE) contracts;(vi) Borrowings from Caterpillar Financial Services, denominated in

dollars, for financing the purchase of engines;(vii) In May 2016, Cellulose Eldorado Austria GmbH, Company’s wholly-

owned subsidiary, entered into a Term Loan agreement with Banco doBrasil AG, Succursale France to extend the average term of itsfinancing transactions;

(viii) In June 2016, the Company, through its wholly-owned subsidiaryEldorado Intl. Finance GmbH, issued Senior Unsecured Bonds/Notes inthe amount of USD 350,000 thousand;

(ix) Financing granted by BNDES for the company’s eucalyptus planting;(x) Financing of machinery and equipment through leasing denominated

in reais.



45

17.3. Restrictive covenants

The financing agreements, ECAs and debentures signed by the Companyfor the implementation of its industrial complex and correspondinglogistics structure contain guarantees through fixed assets up to thelimit of the respective debts, as well as financial covenants usuallyapplicable to the said long modalities term.

The Company maintains agreements with the fiduciary agent and theholders of the debentures of its 2nd Issue regarding non-financialobligations that in previous years were not fulfilled within thecontractual conditions. Failure to comply with these obligations couldauthorize, by deliberation of the holders of the debentures at thegeneral meeting of debenture holders, the early collection of the debtin question. However, no such acts have ever been committed.

17.4. Loan Guarantees

All loan and financing agreements in the modalities of BNDES, FINEMFlorestal and ECAs and part of the modalities of ACC, Finame, WorkingCapital, NCE and Debenture, are guaranteed by an aval granted by theparent company J&F Investimentos SA Debenture and certain debtsterm securities are also collateralized in financial investments asdescribed in Note 5.2.

18. Lease to pay



46

19. Tax liabilities, payroll and social charges

20. Deferred income tax and social contribution

(a) Reconciliation of the effective tax rates:



47

(b) Changes in deferred income tax and social contribution:

(i) As at March 31, 2019, the Company has a balance of accumulated tax loss, adjustedfor revenues and expenses not allowed by tax law for the calculation of income andsocial contribution taxes, totaled R$ 1,619,399.

Deferred taxes arising from temporary differences will be reversed as theyare settled or realized. Tax losses can be carried forward indefinitely;however, the utilization of accumulated losses from prior years is limitedto 30% of the annual taxable profit.

Management, based on an approved budget, estimates that tax creditsarising from temporary differences, tax losses and negative basis of socialcontribution are realized as shown below:

21. Provision for procedural risk

In the normal course of its activities, the Company is subject to tax, labor andcivil lawsuits and, based on the opinion of its legal counsel and, whereapplicable, specific opinions issued by specialists, assesses the expectedoutcome of ongoing lawsuits and determines the need to whether or not setup a provision for contingent liabilities. Based on this assessment, theCompany provided for the following amounts:



48

As at March 31, 2019 the Company was a defendant in environmental, civil,labor and tax lawsuits, amounting to R$ 995,078 (R$ 1,050,633 at December31, 2018), of which the Company accrued R$ 11,203 (R$ 9,167 as at December31, 2018), classified by its management and legal counsel as likelihood ofprobable loss. In general, the claims that originated the lawsuits involveclaims indemnity for damages, notices of violation and others.

For the lawsuits classified as possible losses in the amount of R$ 785,436(R$ 870,843 as at December 31, 2018), the Company believes that no provisionfor losses is required.

The write-off of labor claim amounts is due to the review of provisioningcriteria which readjusted the recognition of provisions identified as excessive.Accordingly, until the phase of appeals is concluded, the proceedings will beconsidered contingent liabilities, for having the likelihood of loss classified aspossible. After the phase of appeals, the proceedings are reclassified asprobable loss, with the proper recognition of provision, meeting therequirements of CPC 25 / IAS 37, regarding the recognition of the presentobligation, the required outflow of funds to settle the obligation and thereliable measurement of the amount of the obligation.

Nature of the main contingencies

(i) Fibria Celulose S.A.

Among the cases above, the Company is the defendant in an intellectualproperty dispute with Fibria Celulose S.A., which alleges that theCompany violated certain rights related to the use of eucalyptus clonesused in a small part of the Company's plantations. On April 19, 2013,Fibria filed a preliminary injunction with the Preliminary ProofProduction. As this was a mere production of evidence from Fibria, theaward favorable to Fibria's claims was approved and the process wasextinguished.



49

On April 1, 2016, the Company was cited as a defendant in an obligationto file an action claiming the amount of R $ 100 million. On May 5, 2016,Eldorado filed a preliminary objection of incompetence and counterclaimwith urgency, claiming in summary that following the legal technicalcriteria, the examination in the samples showed that the seedlings werenot the clones of Fibria and that , even if they were, the use by theCompany would be assured by the provisions of the Law of Protection ofCultivars, without any damage to Fibria.

On September 26, 2016, the emergency measure required by Fibria wasapproved, for the immediate cessation and abstention of the planting andpropagation of eucalyptus clones of VT02 by the Company throughout thenational territory. Of this measure, there was interposition of an Agravoof instrument that also dealt with the absence of prevention of thejudgment of Três Lagoas for the judgment of the ordinary action.

There was judgment of the aggravation that decided by the dismissal.From this decision was filed an appeal in a special appeal, which isconcluded without suspensive effect.

The process is under investigation.

(ii) Administrative process Sancionador – CVM

On December 8, 2017, the CVM filed a CVM Sanctioning AdministrativeProceeding No. 5388/2017, which seeks to determine the purchase ofderivative contracts on behalf of Eldorado Brasil SA and other companieswithin its economic group, between the days 05 and May 17, 2017 withthe use of unfair practices, in alleged violation of item II, item "d" of CVMInstruction No. 8/1979. A compromise and defense proposal wassubmitted in May 2018. Currently, the process awaits appreciation of thedefense. At the present stage of the process it is not possible to classifyits likelihood of loss, nor has any provision been made for this process.

(iii) Exclusion of ICMS from the PIS and COFINS Basis calculation

The Company filed a writ of mandamus seeking to exclude ICMS from thePIS and COFINS calculation basis. The Federal Court of São Paulo approvedthe injunction in May / 2015 and, in June / 2015, ruled in merit favoringthe exclusion of ICMS from the calculation base in relief. This decision wasconfirmed by the Federal Regional Court of the 3rd Region. The FederalGovernment, through the Attorney of the National Treasury, appealed thedecision to the Superior Courts (STF and STJ). On March 15, 2017, in ageneral repercussion (decision that affects all legal proceedings in thismatter), the STF determined that ICMS should be excluded from thecalculation bases of PIS and COFINS, in line with the thesis pleaded for thecompany. Based on this decision and the legal opinions of its legaladvisors, the Company has concluded that the chance of loss of the writof mandamus is remote, which will be final and unappealable, allowingthe Company to proceed with the offset of the credits established.



50

22. Equity

22.1. Social capital

The subscribed and paid-in capital as at March 31, 2019 is R$ 1,788,792,comprising 1,525,558,419 common shares.

22.2. Statutory reserve

Recognized, when applicable, at the rate of 5% of the profit for eachyear, as provided for by Article 193 of Law 6.404/76, up to the ceilingof 20% of the share capital.

22.3. Tax incentive reserve

The Company recognized a tax incentive reserve using part of the netincome resulting from government subventions, represented by ICMScredits granted, arising from a tax incentive package offered by theGovernment of the state of Mato Grosso do Sul to be applied in itsfuture industrial expansion.

22.4. Dividends

Under the Company bylaws, the balance of the profit for the yearremaining after the offset of accumulated losses and allocation to thelegal reserve and the contingency reserve, is used for the payment of amandatory minimum dividend that cannot be lower than 25% of profitfor the year adjusted as prescribed by the Corporate Law.

22.5. Cumulative translation adjustments

The cumulative translation adjustments represent the foreign currencydifferences arising from the conversion of the interim financialinformation of foreign operations.



51

22.6. Earnings per share

Basic

Basic earnings per share were calculated by dividing the profitattributable to holders of common shares by the weighted averagenumber of common shares outstanding:

23. Net Revenue

03/31/2019 03/31/2018 03/31/2019 03/31/2018Gross sales revenueDomestic market 209,722 165,477 209,722 165,477Foreign market 717,386 752,819 1,204,315 1,170,191Discounts and rebates (202) (263) (194,098) (204,937)

926,906 918,033 1,219,939 1,130,731

Sales deductions and taxes (42,706) (34,463) (40,838) (18,513)

Net operating revenue 884,200 883,570 1,179,101 1,112,218

Parent Company Consolidated

24. Operating segments

a. Base for segmentation

The Company’s management defined three segments: pulp, energy andothers based on the reports used by the Board of Directors to makestrategic and operating decisions. The summary below describes theoperations of each of the segments, whose performance targets forassessment purposes are defined and controlled:

Reportable segments Operations

Energy Generation and sale of energy.

PulpPlantation and management of forestresources, purchase of wood, andproduction of pulp.

Others Sale of chips, scrap and waste



52

b. Reportable segments

Information on the results of each reportable segment is presented below:



53

Geographic segments

The information on the consolidated revenue based on the geographicallocation of customers is as follows:

c. Information on major customers

No individual customer represents more than 10% of the Company’srevenues.

d. Information on total noncurrent assets

In the presentation based on geographic segments, the segment's assetsare based on the assets’ geographic location.



54

25. Selling, logistics, general and administrative expenses

26. Financial income (loss), net



55

27. Other income, net

(a) This refers to Government Grants for Investments under a tax incentive package grantedby the Mato Grosso do Sul Government for use in future industrial expansion (Vanguarda2.0 Project). The co-obligations required for keeping the benefit include: average annualbillings, average number of direct jobs, fixed investments and joining to FADEFE/MS. As ofJuly 2018, with the signing of the new Agreement Agreement No. 1,171 / 2018, we nolonger enjoy the tax benefit applied in the Sales of Pulp for Foreign Market;

(b)FADEFE/MS – Fund for Support of Economic Development and Fiscal Balance of the state ofMato Grosso do Sul – established through Statute No. 241/2017 – refers to a fee of 8% to15% on the amounts of the tax benefits enjoyed by companies with benefited investmentprojects which joined the Legal Incentive Program created to validate with CONFAZ(National Council of Fiscal Policy) the Agreement Terms and Regulatory Acts.

28. Employee benefits

a. Defined contribution pension plan

In July 2015, the Company joined a pension plan from Fundação Petrobrasde Seguridade Social - Petros, a closed pension fund.

Under the regulations of the benefit plan, the Company’s contributionsmatch the employees’ contributions and may range from 3% to 6% of thenominal salary. The contributions made by the Company in the period asat March 31, 2019 totaled R$ 561 (R$ 2,491 as at December 31, 2018).

29. Insurance

As at March 31, 2019, the insurance coverage (coverage from 08/15/2018 to08/15/2019) against operating risks totaled R$ 6,903,603 for propertydamages, R$ 1,907,318 for loss of profits, and R$ 96,870 for civil liabilityeffective from 08/15/2018 to 08/15/2019.



56

The risk assumptions adopted, given their nature, are not part of the scope ofan audit, therefore, they were not audited by the independent auditors.

30. Financial instruments

In the normal course of business, the Company is exposed to market risksrelating mainly to interest rate and foreign exchange fluctuation, credit riskand liquidity risks.

a. Market risks

Market risk is the risk that changes in market prices (exchange rates andinterest rates, inflation rates, prices of commodities and shares) affectthe company's income (loss) or the amount of its interest in financialinstruments.

The purpose of market risk management is to manage and controlexposure to market risks within acceptable limits, in order to improve thereturn. The Company uses derivatives to manage market risk, reducing thevolatility in profit or loss.

(i) Interest rate risks

It refers to possible losses that the Company and its subsidiaries may incurdue to interest rate fluctuations. The Company has assets and mainlyliabilities exposed to this risk, such as operations linked to indexes as CDI(Interbank Deposit Rate), TJLP (Long-term Interest Rate), UMBNDES(Monetary unit of the National Bank for Economic and SocialDevelopment), and LIBOR (London Interbank Offer Rate), besidesoccasional transactions with fixed rates that may cause losses resultingfrom the calculation of fair market value (mark-to-market). The Companyaims to reduce the risk of interest rates through the diversification of theindexes hired and, occasionally, by hiring derivatives.

The Company's exposure to interest rate risk refers basically to loans andfinancing. The position as at March 31, 2019 and December 31, 2018:



57

Sensitivity analysis

Debt

For the purpose of providing information on how the market risks to whichthe Company is exposed as at March 31, 2019, would behave, the possible25% and 50% changes in interest rates on the risk variables, as comparedto the probable, are shown below.



58

Management considers that the closing interest rates used to measureCompany financial assets and financial liabilities, at the reporting date,represent a probable scenario, whose effects are already recognized inprofit or loss. The net results of exposures are as follows:

Parent Company

Consolidated

Scenarios i and ii take into account a 25% and 50% increase in the interestrates, respectively.

The average cost of loans based on the basket of currencies is establishedaccording to the average cost of BNDES fund raising in foreign market,forming the UMBNDES and charges of the basket of currencies, which isthe variable interest rate.

The long-term interest rate (TJLP) was created to be used as a benchmarkof the basic cost of funding granted by BNDES and at March 31, 2019 was7.03% per year (6.98% per year in December 2018).

(ii) Foreign exchange rate risks

The Company is exposed to foreign exchange risk as a result of amismatch between the currencies used in its sales, purchases and loansand the respective functional currency of the Company.

The Company is mainly subject to the fluctuation of US dollar beforeBrazilian real when it comes to exchange rate gains and losses.

As at March 31, 2019, US dollar and Euro rates were R$ 3.8967 andR$ 4.3760, respectively.

As at March 31, 2019, the foreign exchange rate risk was concentrated onthe captions Cash and cash equivalents, Financial investments, Tradeaccounts receivable and payable, and Loans and financing.

For the purpose of hedging against the fluctuation of foreign exchangerates, the Company seeks a balance between its assets and liabilities inforeign currency. It may hire derivative financial instruments in order toeliminate any residual difference.



59

The Company´s assets and liabilities exposed to the foreign exchange riskare as follows:

Parent Company

The foreign exchange rate risk may result in losses for the Company dueto a possible depreciation of the Brazilian Real, reporting currency of theCompany.

Sensitivity analysis

For the purpose of providing information on how the market risks to whichthe Company is exposed at March 31, 2019, would behave, the possible25% and 50% changes in interest rates on the risk variables, as comparedto the probable scenario, are shown below. Management considers thatthe closing quotations used to measure Company financial assets andfinancial liabilities, at the reporting date, represent a probable scenario,whose effects are already recognized in profit or loss. The net results ofasset and liability exposures are as follows:

Parent Company



60

(iii) Derivative financial instruments

The Company monitors the net exposure risk of business transactionsreceivable in comparison with its obligations (including debts) regardingforeign exchange fluctuation continually evaluating the decisions to bemade.

In May 2018, the Board of Directors followed the recommendation of theAudit, Finance and Risk Management Committee (“Committee”) adoptingthe plan for hire of derivative financial instruments for hedging against itsexposure to US dollar in the Company's statement of financial position. Bythe end of that month, the Company started to hire currency forwardcontracts with no physical delivery (Non Derivable Forward - NDF),acquired from private banks, indexed to US dollars and maturing in thefirst business day of the following month, as shown in the table below.The notional value of the derivatives is limited to the Company’s exposureto foreign exchange fluctuation, daily calculated.

The Company daily calculates mark-to-market (MtM) of its derivativesusing future dollar prices negotiated at BMF Bovespa, considering that thederivative transactions hired are short term and have the same maturityof the contracts negotiated in the stock exchange.

On March 31, 2019, the Company held the notional amount of US$ 500,000in outstanding derivatives (NDF) maturing on May 2, 2019:

Derivatives position with mark to market

On November 09, 2018, the board of directors reviewed and ratified NDFhirings made by the company in the last quarter until the date of thisreport.



61

(iv) Price risk

The Company is exposed to wood price volatility only for new agreementsnot closed, resulting from factors beyond management control, such asclimate factors, offer volume, transportation costs, forestry policies andothers. To ensure the supply of the raw material necessary for theoperation of its plant, the Company has been entering into partiallyprepaid wood supply contracts for future delivery and is not exposed tothe volatility of prices for the contracts already signed:

The risks of not receiving the wood are mitigated by the continuousmonitoring of forest development by Company specialists.

b. Credit risk

Credit risk is the risk of the Company incurring losses resulting fromfailure of a customer or counterparty in a financial instrument to meet itscontractual obligations. Basically is the risk of default related to tradeaccounts receivable.

The credit risk in the Company's operating activities is managed based onspecific rules for client acceptance and on the definition of the respectivecredit limits, consistently applied by means of credit analyses periodicallyreviewed, discussions with the credit committee, and after guaranteespresented by the clients. The Company works to guarantee the realizationof outstanding credits through the frequent monitoring of defaultreceivables and also use of letters of credit and other financialinstruments that guarantee the respective receivables.

The bank deposits and financial investments are hired from top-tierfinancial institutions, so the risk of loss from these financial institutions isminimum.

Exposure to credit risk

The carrying amount of the financial assets represents the maximumcredit exposure. The maximum exposure to credit risk at the end of thereporting period was:



62

c. Liquidity Risk

It results from the possibility of the Company finding difficulties to complywith the obligations associated to its financial liabilities settled throughpayments in cash or through other financial assets.

The Company's long-term debt consists of the following types: BNDES,ECAs and debentures, with an average maturity of 2 to 5 years, as well asthe debts of its subsidiaries, Term Loan and Bond. The debt of the ECAsand the debentures has personalized payments. In the first years theamortization of the principal is smaller in relation to the years thatapproach the total liquidation.

The Company's working capital financing is made by contracting ACCs,NCEs and Prepayments credit lines.

The table below shows the fair value of the Company’s financial liabilitiesaccording to their maturities and do not include expected interest cashoutflows:



63

d. Operational risks

(i) Biological assets

The valuation of biological assets at their fair value, made quarterly bythe Company, considers certain estimates, such as: wood price, discountrate, forest productivity and silvicultural costs, which are subject touncertainties and may generate effects on future income (loss) as a resultof their variations. The change in fair value is determined by thedifference between fair values of biological assets at beginning and end ofthe period evaluated.

The forests that make up the biological assets are subject to operationaland environmental risks, such as fires, pests, diseases and climaticvariations.

In the Company, forest protection against fire, pests and diseases is basedon a strategy of prevention, monitoring and control. Annuallymaintenance of firebreaks, which are an area without vegetation wherethe soil is cleared, causing the discontinuity of combustible vegetalmaterial and, thus, preventing that burnings and fires are spread. Also,constant monitoring is done through a camera system strategicallypositioned in the forests, with the use of alarm systems and contact withfire brigades trained to fight fire outbreaks in forest areas In cases of pestand disease occurrence, the management of Forest Research andTechnology operates with physiology and phytosanitary experts who adoptprocedures for diagnosis and fast measures against the possibleoccurrences and losses of forest production.



64

Additionally, there is an exposure to risks related to weather changes,which may affect the ecosystem balance and, consequently, productivityof plantings. The Company adopts measures of control and monitoring offorest productivity, such as monitoring of handling, in addition tonutrition and genetic improvement, which includes adaptation of speciesin different weather conditions. We have increased the number of clonesplanted on an operational scale to mitigate risks inherent to weatherchanges. With increasing genetic variability, we can affirm that wecurrently have forests more prepared to adapt to the oscillations of theclimate.

We continually improve our forest handling plan, which contains the mainguidelines and information on our silvicultural operations, harvesting,timber transportation, native vegetation conservation areas, and socialand environmental responsibility initiatives. In addition, we are guardiansof approximately 100 thousand hectares of preserved areas, includingpermanent preservation areas, legal reserve areas and other conservationareas. Sustainable and innovative initiatives together with responsiblemanagement guarantee the balanced use of natural resources essentialfor the continuity of our business.

Our forest operations are certified by the Forest Stewardship Council, orFSC, an independent international non-profit organization. The FSCestablishes ten principles and several criteria for describing essentialelements or rules of environmentally adequate, socially beneficial andeconomically viable forest handling, all of which must be applied in aforest handling unit before it can be FSC certified. FSC certificates arevalid for five years, but certification bodies qualified by FSC conductannual audits to check continued compliance with FSC certificationrequirements.

(ii) Right-of-use of port movement concession

The operations at Rishis are subject to operating and environmental risks,such as fires, loss of the concession, non-compliance with theinternational security plan (ISPS Code) and with the environmentalprotocol, acts of God or force majeure.

In this scenario, Rishis has an insurance policy issued by FM Globalincluding: Property, D&O and General Civil Liability in addition to thepermanent inspection from intervening authorities such as: CompanhiaDocas - CODESP (port authority), National Agency of WaterwayTransportation - ANTAQ, the Environmental Agency of the state of SãoPaulo - CETESB, Security Commission of ISPS Code, Municipal Governmentof Santos (work permit) and permit of the Fire Department of the state ofSão Paulo (AVCB), always in line with the legislation inherent to thementioned authorities.



65

§ Mutual Assistance Plan for the Port of Santos (“Plano de AuxílioMútuo do Porto de Santos” - PAM)

In compliance with the PAM of the Port of Santos and in line with theCompany’s corporate policies, Rishis developed its “Permanent Plan onEmergency and Occupational Health and Safety” guided by “RegulatoryStandard 29” (NR29) on port occupational health and safety, whose teamis formed by qualified professionals such as: safety technician, nursingtechnician, fire brigade and representatives of the Internal Commissionfor Accident Prevention (CIPA).

§ ISPS Code

Rishis meets all basic requirements of ISPS Code by controlling the accessof people, vehicles and 24 hours monitoring. All records and images areshared in real time with the customs of the Port of Santos.

§ Environmental management

Rishis updates and meets all environmental and sustainability protocolsrequired by the Port Authority (CODESP), CETESB and by the MunicipalEnvironment Department, whose foundations and better practicesadopted by the company are recognized and ratified as per ISO14001.

§ Port lease

The port lease is ruled by the mentioned Lease Agreement DP-DC01/2005. It is the legal instrument of public domain, entered into with theport authority (CODESP) ratified by the competent federal regulatorybodies (SEP, ANTAQ). Rishis focus on the full compliance with all theclauses of this contract by meeting its obligations punctually, exercisingthe rules of good coexistence in the established port, moving thecommitted cargo, promoting the sustainable and social development ofthe region (port-city).

§ Fortuitous or force majeure case

The Company has a quite varied logistic operation, in which Rishis isresponsible for 38% of total volume. To reduce the risk of acts of God orforce majeure in Santos, the Company implemented a break bulkoperation in the public port of São Francisco do Sul/SC whose movementsmay reach 450 thousand tonnes.

e. Fair value of financial instruments

The assets and liabilities measured at fair value in the statement offinancial position are classified based on the following fair value hierarchylevels:



66

§ Level 1 - Quoted prices (unadjusted) in active markets for identicalassets or liabilities;

§ Level 2 - Inputs other than quoted prices included within Level 1 thatare observable for the asset or liability, either directly (i.e. as prices)or indirectly (i.e. derived from prices), and valuation techniques thatuse market inputs;

§ Level 3 - Inputs for the asset or liability that are not based onobservable market inputs. The Company and its subsidiaries do nothave instruments in this measurement level.

The table below shows the classification per risk level:



67

Breakdown of the balances of financial instruments per category and fairvalue:



68

The fair value of the financial assets and liabilities refers to the value forwhich the instrument can be changed in a current transaction betweenwilling parties and not in a forced sale or liquidation transaction. Themethods and assumptions used to estimate the fair value are describedbelow.

The fair value of related-party receivables/payables approximates theircarrying amounts, mainly due to the short-term maturity of theseinstruments.

The fair value of the loans and financing, and the company’s debenturesare measured in two ways: 1) for debts with renegotiation in thesecondary market, where the settlement value may differ from their cost,the market value on the last day available is used; 2) for debts that arenot traded in the secondary market, where the settlement value is closeto the cost (principal and interest accrued to the date), the carryingamount is used as the fair value. A substantial part of the company’sdebts is under this category, including, but not limited to, debts toBNDES, ACC, ECAs and others.

The derivatives are measured using valuation techniques based onobservable market inputs. The valuation techniques more frequentlyapplied include pricing models of swap contracts, calculating the presentvalue of the cash flows involved in the transaction. For the calculation ofthe over-the-counter NDF transactions, an early settlement is simulatedusing the exercise price and PTAX of the day. For future commoditiespositions at BM&F, it is used the adjustment price disclosed by thatentity. The models incorporate several data, including the counterparty’scredit quality, place and rated hired.

31. Operating Leases

a. Operating Lease of Chemical and Oxygen Plant and Gas DistributionLine

(i) Future minimum lease payments

As at March 31, 2019, future minimum noncancelable lease payments areas follows:



69

Amounts recognized in income (loss)

The Company has take-or-pay contracts of two chemical plants and onedistribution line to meet the needs for inputs to produce pulp.

There are three take-or-pay contracts, two of them with a fifteen yearsterm, one to meet the needs for Chlorine Dioxide that started inDecember 2012, whose price of Ton of Sodium Chloride shall be adjustedon the first day of each year by the IPCA (Extended Consumer Price Index)and another to meet the needs for Oxygen in its gaseous form that startedin October 2012, whose debt was contracted in dollar and the monthlyfixed installments shall be adjusted by the CPI (Consumer Price Index) onthe first day of each year.

The third contract has a twelve-year term to meet the needs for industrialnatural gas, which started in May 2016, whose price of cubic meter iscomprised of three factors: a) price of the natural gas adjusted quarterlyaccording to the arithmetic averages of the daily quotations disclosed inthe Spot Price Assessments list published on the Platt’s Oilgram PriceReport; b) average transportation tariff divided into two installments, thefirst adjusted by 0.5% p.a. and another by 3.5% p.a., both on the first dayof each year; c) fixed margin of the distributor adjusted on the first dayof each year by the IPCA (Extended Consumer Price Index). Beginning June30, 2020, the parties will renegotiate the commercial conditions of thenatural gas supply, when the Company may terminate the presentcontract if there is an economic and financial imbalance or excessiveburden to the Company.

32. Collaboration Agreement, Leniency Agreement and Internal Investigation

32.1. General information on the Collaboration Agreement of executivesand former executives of J & F Investimentos S.A.

As it is publicly known, in May 2017 certain executives and formerexecutives of J&F Investimentos SA ("J&F"), as the parent company ofthe companies belonging to the "J & F Group", of which the Company isa part, assumed certain Collaboration Agreement Awarded with theAttorney General's Office ("PGR"), aiming at meeting the publicinterest, in particular the deepening, throughout the country, ofinvestigations into events contrary to the law.



70

On June 5, 2017, J&F entered into a Leniency Agreement with theFederal Public Ministry ("MPF"), approved by the 5th MPF Coordinationand Review Chamber on August 24, 2017, to which the Companyadhered on September 21, 2017 ("Agreement").

In the Agreement, J&F undertook, on its behalf and on behalf of thecompanies controlled by it, to cooperate voluntarily with the state,conduct internal investigations and provide information to prove themateriality and authorship of the irregular acts committed andconfessed In addition, J&F undertook to repair damages and lossesarising from the related events under the Collaboration Agreements, bypaying R $ 10.3 billion over 25 years, due in December 2017. Internalinvestigations J&F are still in progress.

Independent internal investigations at J&F are still ongoing.

In January 2019, the Company restructured the Compliance area andhired new professionals dedicated exclusively to this area. The areawill assist in the implementation of an integrity program, consisting ofinternal policies, procedures and internal controls related to integrityand anti-corruption, as well as the improvement of the code of conductand denunciations channel, as well as implementation of personneltraining, procedures investigations and disciplinary measures.

32.2. Internal investigation carried out within the scope of the Company

Under Clause 15, XX of the Agreement, J & F is required to conductinternal investigation, following good international practice, with thepurpose of verifying and corroborating the wrongful acts described inthe Agreement, and also to identify possible documents or additionalevidence of corroboration of the facts narrated in the Agreement.

In view of this obligation, and as a result of the Company's adhesion tothe Agreement, an internal investigation was conducted in theCompany by the Barros Pimentel, Alcantara Gil and RodriguezAdvogados ("BP") law firm, which was named PricewaterhouseCoopersContadores Públicos Ltda. ("PwC" and, together with BP, "InvestigationTeam") to provide specialized forensic services for the collection,hosting, processing and analysis of data necessary for such aninvestigation ("Internal Investigation"). The Company clarifies thatthere are Annexes to the Agreement that are still under confidentialityby determination of the competent Court.



71

The Company points out that, on August 11, 2017, as part of theobligations under the Agreement, an Independent Oversight Committeewas established to monitor the Internal Investigation and also provideany clarification directly to MPF ( "Independent Committee"). TheIndependent Committee ratified the hiring of the Investigation Team,which then responded directly to the Independent Committee,including its scope of action and preliminary and final findings.

Regarding the execution of the Internal Investigation work object of theAgreement, we clarified that according to the Investigation Team, theyfollowed the standard methodology used internationally for this type ofprocedure and nature, and the analyzes were based on: (i) documentsrequested by the Investigation Team to the Company; (ii) documentscollected from the electronic equipment of employees and formeremployees, as well as from the Company's files and servers network;(iii) interviews with relevant persons deemed "key" to the process, and(iv) documents made available by J & F relevant to the Agreement.

Among the activities carried out by the Investigation Team are: a)definition of custodians, data collection of equipment in the cities ofSão Paulo / SP and Três Lagoas / MS and collection of network data onthe Company's servers in São Paulo / SP, which reassembled to about6.7 terabytes of data; b) follow-up of the work, in the form ofshadowing, by the audit firm BDO RCS Auditores Independentes, thecurrent auditing firm hired by the Company as from the year 2017 andmonitored by KPMG Auditores Independentes, as an audit firm hired bythe Company until the 2016 financial year; c) interviews withemployees and former employees of the Company and with J & Femployees who may have some relation to the facts under analysis; d)definition of key words and processing of collected data.

The research was finalized by the Research Team, with a report datedApril 20, 2018, submitted by the Research Team to the IndependentCommittee and J&F.

The conclusions of this report, related to facts and data analyzed bythe Investigation Team, are that no new facts, other than those alreadypublicly known and mentioned in the Annexes to the Agreement, havebeen found, as well as the absence of new relevant facts in the contextof the impact assessment on the Company's accounting information.



72

During the fourth quarter of 2018, at the request of the FederalProsecutor's Office to the Investigation Team, complementaryprocedures were initiated to the investigation completed previously.The complementary scope refers exclusively to the more completedetail of the facts narrated in the Leniency Agreement and topicsalready covered in the research completed in April 2018. Thecomplementary report was completed and presented by theInvestigation Team to the Independent Committee in March 2019.

Of the analyzed items, the only one that brought accounting impacts tothe Company was related to the verification of the circumstances ofpayments made by the Company in the scheme operated by LucioFunaro for the release of funds by FI-FGTS and Caixa EconômicaFederal, involving payments of R $ 37 , 4 million without cause. A factthat the Company, through an assessment of the Federal RevenueService, made full payment of taxes and related fines, in the amount ofR $ 46.3 million, with a 50% reduction of the fine.

It is important to note that, although payments were made by theCompany to companies associated with Mr. Lucio Funaro, under theterms of Exhibits 04 to 06 of the Agreement: i) interactions with Mr.Lucio Funaro were not made by officers or employees of the Companyand executives of the Company were not aware of the adjustment withLucio Funaro; ii) it was a payment system made to companies linked toMr. Lucio Funaro through invoices issued against group companies, withpayments made in the amount of R $ 37.4 million; iii) financingobtained by the Company did not have more advantageous conditionsthan the other loans granted to other companies at the time. In thissense, the Report concludes with corroborating the above allegations.

We confirm that the obligations set forth in the Agreement continue tobe fulfilled in their entirety, and the timing of their executioncontinues in accordance with the provisions of the Agreement, asexpressly certified by the MPF through Certificate 5150/2019 issued onMay 2, 2019 .

33. Purchase and Sale Agreement of Stock

On September 2, 2017, J & F entered into a purchase and sale agreement forthe sale of its direct and indirect interest in the Company to CA Investment(Brazil) SA, a company of the group Paper Excellence ("CA Investment"), for thetotal value of the Company of R $ 15 billion, to be adjusted according toworking capital and net debt, under the terms of the agreement ("Purchase andSale Agreement").



73

CA Investment filed a preliminary injunction under the precedent 1083967-87.2018.8.26.0100, before the 2nd Business Court and Arbitration Conflicts ofthe Central Forum of the County of São Paulo, at the beginning of August 2018,with issues related to the Purchase Agreement and Sale of Shares.

On September 4, 2018, the Company received correspondence from J & F,informing that J & F exercised the right to terminate the Share PurchaseAgreement.

Also in September 2018, CA Investment initiated arbitration proceedingsagainst J & F and the Company, which is subject to secrecy, having as itsobject issues related to the Share Purchase Agreement and related matters.

On November 28, 2018, the Court of Justice of the State of São Paulo judgedtwo remedies derived from the aforementioned preliminary injunction, givingpartial relief to (i) suspend the effects of the termination of the Purchase andSale Agreement; and (ii) confirm a lower court decision that (ii) J & F shouldnot dispose of the shares of Eldorado owned by third parties and (ii.b) theparties must comply with a provision of the Purchase and Sale Agreement ofActions that regulate aspects of the business management of Eldorado, in bothcases until a later decision in the arbitration.

On February 07, 2019, CA Investment requested in the same lawsuit urgentprotection to prevent the issuance of bonds in the international market byEldorado. The guardianship was initially granted, but then revoked by the courtof first instance. Likewise, in an appeal filed by CA Investment, the issue ofbonds was initially prohibited and then authorized by decision of the reportingjudge of the Court of Justice of the State of São Paulo.

On March 26, 2019, after the constitution of the arbitral tribunal competent toadjudicate the litigation, the aforementioned legal action and related appealswere extinguished.

The final resolution of the conflicts between the shareholders of the Companyshall be rendered by the aforementioned arbitral tribunal, at an indefinitedate.

On March 31, 2019, the Company's shareholding composition comprised a49.42% interest in CA Investment and a 50.58% interest in J & F, soleshareholders of Eldorado, with J & F remaining as the Company's controllingshareholder.



74

Board of Executive Officers

Aguinaldo Gomes Ramos Filho Germano Aguiar VieiraCEO Forest Director

Carlos Roberto de Paiva Monteiro Rodrigo LibaberIndustrial Technical Director

Lucio Iugi SugaeFinancial Director

Business and Investor RelationsDirector

Board of Directors

Sérgio Longo João Adalberto Elek JúniorVice Presidente do Conselho de

AdministraçãoConselheiro

José Antonio Batista CostaConselheiro

Leonardo Porciuncula Gomes PereiraConselheiro

João Cox NetoConselheiro

Marcio Antonio Teixeira LinaresConselheiro

Francisco de Assis e SilvaConselheiro

Accountant

Angela Midori Shimotsu do NascimentoCRC SP 227742/O-7

eldorado brasil celulose s.a. independent auditor’s review … · 2019-05-16 · eldorado brasil...

Documents